Differences Between Umbrella and Excess Policies

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Umbrella Policies

The commercial liability umbrella coverage form is a complete policy. It has its own insuring agreements, exclusions, conditions, limits, and definitions. It refers to the underlying coverage forms or policies but the insurance it provides is based on the coverage form itself. Example: Premium Auto Sales has a garage policy, employers’ liability coverage as part of its workers compensation policy, and a watercraft policy. The garage policy has a number of amendatory and manuscript endorsements. Premium purchases commercial liability umbrella coverage. The umbrella underwriter reviews the various garage endorsements to determine the ones he must include on the umbrella. If the underlying policy provides a coverage that is not in the commercial liability umbrella coverage form, its limits do not apply to that coverage. In certain cases, commercial liability umbrella coverages are based on the coverages in the underlying coverage form or policy and basically “follow form.” The commercial liability umbrella's coverage does not apply unless the underlying coverage provides the same coverage. The coverage broadening is generally limited to what the underlying coverage provides.

Excess Policies

Excess policies are dependent policies. They are based on the underlying coverage instead of having their own insuring agreements, exclusions, conditions, and definitions. They do not add to that underlying coverage. Example: Premium Auto Sales has a garage policy, employers’ liability coverage as part of its workers compensation policy, and a watercraft policy. The garage policy has a number of amendatory and manuscript endorsements. Premium purchases excess coverage. It refers to the underlying policies but does not have any endorsements of its own since the underlying coverage determines the excess coverage.

Which Policy Type is Better?

Commercial liability umbrella policies were originally designed to offer additional limits and cover some of the gaps in the underlying coverage. They were not simply increased limits silos. They also provided a canopy or an umbrella that offered the insured a measure of protection from certain limitations in the underlying. If the umbrella covered something that the underlying did not cover, the insured paid a self-insured retention, usually in the range of $10,000 to $50,000, and then had coverage up to the umbrella's limit. However, as primary commercial general liability coverage forms and policies became broader, the umbrella's additional coverage was reduced. It did not change but its coverage became narrower because the primary commercial general liability coverage became broader. From the insured's perspective, there are no surprises or excitement in excess coverage forms and policies. All coverage disputes arise from the underlying coverage.

Once the primary coverage is determined, the excess follows form by providing additional limits up to its ultimate limit. Excess coverage allows easy comparisons based purely on price and capacity. From the insurance company's point of view, excess coverage forms and policies can be very exciting and this is one reason why they may be more difficult to obtain. The insurance company must review and underwrite the underlying coverage and decide if it wants to assume the coverage provided. This is a special problem when the underlying coverage forms or policies are non-standard or have unique or manuscript coverages and endorsements. Umbrella underwriters are more confident when they price commercial liability umbrella coverage because they deal with their own coverage form. They do not have to take the extra step to research or analyze another carrier’s underlying coverage forms or policies.

Many insurance companies no longer provide “pure” excess because they want more control over the coverage they provide at the upper limits. It is important to compare the various coverage forms to determine the exact differences in coverage. The coverage still depends much more on the underlying insurance than the umbrella.